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Impact of ICT in entrepreneurship: econometric estimates to the panel of countries
Vélez, J.A
ACORN- REDECOM CONFERENCE 2011
Lima, Perú. May 20- 2011
ICT impact on entrepreneurship
Outline
1. Motivation
2. Theoretical Approaches
2.1 Entrepreneurship theorical approaches
2.2 Empirical Evidence: Main works
3. The Model
4. Stylized Facts
5. Results and Conclusions
ICT impact on entrepreneurship
Goal of the Paper
Approach the study of causal relationships between ICT and entrepreneurship.
Make some initial econometric estimates of this relationship.
Entrepreneurship Snapshots
Data profile: Years: 2004-2009; Economies: 109 Objective: Benchmark entrepreneurship and private sector developmentSource: World Bank Group Entrepreneurship Database
ICT impact on entrepreneurship
Motivation
• One of the variables which stimulates economic growth of countries is the level ofentrepreneurship as demonstrated by the work of Morris (2001), Carree andThurik (2003), Stel (2005)
• Also address the growing concerns about economic growth and competitiveness inworld markets, governments have responded to this new evidence policiesencouraging entrepreneurship (Audretsch and Thurik, 2001, OECD, 1998).
• Several studies (eg Audretsch and Thurik (2001), Thurow (2003)) stressed the needto study the role of ICT in generating new business.
• The typical features of the entrepreneurial process, its environment and innovativepotential has the following characteristics:
• The intensive information content and knowledge (Role of decisions)• The fundamental role of human resources as a factor of systemic
competitiveness.• The importance of learning curves and channels for technology transfer.• The level of economic and institutional development and technological
environment has special features on the entrepreneurial process.
ICT impact on entrepreneurship
Business Density and its relationship with GDP per capita (Average for the Panel, period 2002 - 2006)
ArmeniaAustria
Brazil
Buirkina Faso
Cánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
Italy
Latvia
LebanonLithuania
MalaysiaMoldova
Moroco
New Zeland
Oman
Portugal
Romania
RussiaSingapore
Slovenia
Spain
Sweden Switzerland
ThaylandTurkey
United Kingdom
Uzbekistan
y = 0.0223ln(x) - 0.1709
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0 5000 10000 15000 20000 25000 30000 35000 40000 45000
Bu
sin
ess
De
nsi
ty
GDP (Dollars PPP)
ICT impact on entrepreneurship
Source: GAuthor's calculation based Global Entrepreneurship Monitor (GEM and IMF
2.1 Concept of Entrepreneurship
One of the variables which stimulates economic growth of countries is the level of entrepreneurship Morris (2001); Carrée y Thurik (2003); Stel (2005).The work of Kline and Rosenberg (1986) define the limits of the level of entrepreneurship:"It's not a linear process, automatic and systematic, but a system of interactions and feedbacks between different functions and participants whose experiences and knowledge are iterated and intertwine each other and in turn build up. “The enterprise is defined from a multidimensional, and relates to the behavior of individuals to carry out new risks or business. Entrepreneurship is synonymous with innovation, self-employment or own business (Webster's Third New International Dictionary of the Inglés Language, unabridged (1976), Encyclopedia
ICT impact on entrepreneurship
Total Early.Stage Entrepeneurial Activity (TEA)
Potencial Entrepreneur: Opportunities, Knowledgeand Skills, Technologicalinfrastructures
Nascent Entrepreneur:Involved in setting up a Busines
Conception Firm Birth Persistence
Owner- ManagerOf a New Business(up to 3.5 years old)
Owner- Manager of anEstablished Business (more than 3.5 yearsold)
Discontinuationsof Business
Entrepreneurial Process
ICT impact on entrepreneurship
Factor- Driven Efficiency- Driven Innovation- Driven
Basic Requirements Eficiency Enhancers Entrepreneurship Conditions
From subsistence agriculture toextraction of natural resources,Creating regional scale- intensiveagglomerations
Increased industrializationAnd economies of Scale. LargeFirm dominate, but supply chainniches open up for small and Medium enteprises
R&D, Knowledge intensity,and expanding service sector.greater potential for innovativeentepreneurial activity.
Entrepreneurial Process
ICT impact on entrepreneurship
2.2 Theoretical Approaches (1)
1. Entrepreneurship like Innovation process
Line 1: (Solow, 1956; Swan, 1956; Harrod 1949): Total Factor Productivity (TFP)Line 2: Romer, 1986 y 1990; Mankiw, Romer y Weil, 1992; Grossman y Helpman (1991).Line 3: Tebaldi y Elmslie (2007), Engerman y Sokoloff (1997), Acemoglu y otros (2001) y (2004),
Easterly y Levine (2003).
),(
)((H=Y
TAF
O
Y diiXB
10:
10:
1
),(
0
1 TAF
Y XiHY
θ = Technical Progress Indicator: New Processes and businesses. ExogenousHall (1988) believes that innovation, in the sense of productivity can not be conceived as the "Solow residual"Imperfect competition in the innovation function is
different to that related to this waste:1) Difficult to test the substitutability of factors in the short term.2) No normal data with which models are implemented.
=Human Capital
= Intermediate inputs= Knowledge= Institutional Quality(Sala-i-Martin (2002)
H
XiA
T
2.2 Theoretical Approaches (2)
1. Prior knowledge (prior accumulation of technological capabilities, Lall, 1992). The incorporationof learning curves. (Pavitt, 1997, Nelson and Sampat, 2001).
2. The environment in which the entrepreneurial process develops (Thomas, 1993).
3. Type of qualification of the workforce. Nelson y Winter (1982); Pavitt (1997); Dosi (1988a,1988b y 1997).
4. Specificity of the level of entrepreneurship (Incremental or radical processes. (Afuah, 1999).
5. Also address the growing concerns about economic growth and competitiveness in worldmarkets, governments have responded to this new evidence policies encouragingentrepreneurship (Audretsch and Thurik, 2001, OECD, 1998).
6. Porter and Stern., (2002). Thurow (2003) and Audretsch and Thurik (2001) the degree ofeconomic development of each country plays a role when ponderarte entrepreneurialbehavior observed over time, because for low-income countries and half the level ofentrepreneurship is different from high-income countries, this because for the first, theprocess of enterprise creation is crucial to the extent that streamlines in the long run theireconomies. ICT impact on entrepreneurship
Papers Methodological characteristics Scenario
Carree and Thurik (2003); Geroski and
Jacquemin (1985); OECD (1998).
Econometric estimates where the output enterprise depends on
the level of income, unemployment, education levels, cost of
capital, and demographic variables.
Macroeconomi
cs Variables
Wennekers et al (1999) Analyze cultural and institutional factors that determine the level
of entrepreneurship.Qualitative
analysis
Jensen (1993), Freeman and Pérez
(1988)
Study the impact of ict level of entrepreneurship on the industry.
Panel Data Analysis
Have shown that ICT has reduced transaction costs and allowed
efficient scaling of the industries, which has opened doors for
many small businesses either new or existing industries initiate
plans for productive investments in various areas of the economy
.
ICT and
Industry
Audretsch and Thurik (2001); Thurow
(2003)
Have shown that ICT has reduced the importance of economies
of scale in many sectors which has spurred the creation of small
and new businesses.
ICT and
Industry
(Lope, 1996). Study the relationship between investment in technology, human
resources and entrepreneurship OLS
Positive relationship
Spain
Berman et al (1998), Caroli and Van
Reenen (1998), Berndt et al (1992), Katz
and Murphy (1992), Bell (1996),
Acemuglu (1998), Goldin and Katz
(1998), Caroli and Van Reenen (2001).
Skill biased technical Change
The introduction of new technologies increases the demand for
workers with better qualifications
Microecono
metrics
Emp
iric
alEv
ide
nce
ICT impact on entrepreneurship
Panel Data Specification: ICT impact on entrepreneurship
The model
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ICT impact on entrepreneurship
ICT impact on entrepreneurship
Panel Data Specification: ICT impact on entrepreneurship
The Model
i
y =
K
k
titiktik
K
k
tiktikti vFICTE1
,,,,,
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,,,,,
~
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Business Density
ICT Vectors
Control Variables
Withing Estimators
Business Density
Broadband
Personal computers
Macroeconomics
Controls
Personal computers (
Determinant Variables Determinants
ICT Vector
Institutional and Educational
Vector
Vector Error µ
Intitutional Controls Var
Education Investment/
GDP
tiE ,
~
K
k
titiktik
K
k
tiktikti vFICTE1
,,,,,
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,,,,,
~
ICT impact on entrepreneurship
VARIABLES DESCRIPTION SOURCE
Business Density Business Density as percent of WAL. World Bank Group
Entrepreneurship
Survey 2008In
de
pe
nd
en
tV
aria
ble
s
ICT
en
viro
nm
en
t
Broadband subscribers
(per 100 people)
Broadband subscribers are the total
number of broadband subscribers with a
digital subscriber line, cable modem, or
other high-speed technologies, although
definitions may vary from country to
country.
World Development
Indicators Online.
2008. World Bank
Personal computers(per 100 people)
Personal computers (per 100 people)
Millennium
Development Goals
Database. United
Nations Statistics
Division
Cell phones (per 100
people)The number of suscribers per 100 people to a service providing acces tothe telephone network using cellulartechnology.
World
Development
Indicators Online.
2008. World Bank
Mo
del
Var
iab
les
tiICT ,,1
tiICT ,,2
tiICT ,,3
tiE ,
~
Hu
man
Cap
ital
Investment in
education as share
of GDP
Public investment in education as a percentage of gross domestic product UNESCO
Inst
itu
tio
nal
Envi
ron
me
nt
Regulatory quality
interacted with the
ease of doing
business
Government's ability to formulate and implement policies and regulations that
stimulate and promote private sector development.
Indicator constructed in standard deviations ranging from -2.5 to 2.5 deviations.
This index is constructed indexed to the global average, where -2.5 indicates that
the worst and 2.5 the best performance. (It is an ascending scale). For more
details on the construction of this index is recommended to see the paper of
Kaufmann et al (2010)
The Worldwide
Governance
Indicators (WGI)
Project.
Property Rights
The property rights index measures the degree to which a country's laws protect
private property rights and the extent to which the government enforces the law
that protects such protection. It also assesses the likelihood that private property
is expropriated.
Index ranges from 0 to 100 where 0 indicates that private property is illegal and
100 indicates that the government fully guarantees freedom of privacy.
The Index of
Economic
Freedom, Heritage
Foundation
Ease of Doing
Business
Rigorous quantitative measure, quantity and cost of requirements to start,
operate and close a deal. The index is based on 10 factors, all weighted equally
using data from the World Bank Doing Business.
The Index of
Economic
Freedom, Heritage
Foundation
Mac
roe
con
om
ic
Envi
ron
me
nt
Unemployment Percentage of total unemployed as a percentage of the workforce World Economic
Outlook Database
The International
Monetary Fund.
Income per person
(GDP/capita, PPP$
inflation-adjusted)
Gross domestic product per person adjusted for differences in purchasing power (in
international dollars, fixed 2005 prices, PPP based on 2005 ICP).
World Economic
Outlook Database
The International
Monetary Fund.
Co
ntr
ol V
aria
ble
s
tiF ,,1
tiF ,,2
tiF ,,3
tiF ,,4
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
AlbaniaArmeniaAustria
AzerbaijanBrazil
Bulgaria
Burkina Faso
Canada
Colombia
Croatia
Denmark
Georgia
Hong Kong, China
Hungary
Iceland
ireland
Italy
Jamaica
LatviaLebanon
LithuaniaMalaysiaMoldova
MoroccoNew ZealandOman
PakistanPhilippines
Portugal
Romania
Russian Federation
Singapore
Slovak Republic
Slovenia
Spain
Sri Lanka
Sweden
Switzerland
Tajikistan
Thailand
Turkey
United KingdomUkraine
UzbekistanYemen, Rep.Zambia
Business Density Radial Chart by Country
Stylized Facts
ICT impact on entrepreneurship
Source: Author's calculation ON Global Entrepreneurship Monitor (GEM and World Bank Group Entrepreneurship Survey
2008)
Broadband subscribers (per 100 people) Radial chart by
Country
0
5
10
15
20
25
AlbaniaArmenia
AustriaAzerbaijan
Brazil
Bulgaria
Burkina Faso
Canada
Colombia
Croatia
Denmark
Georgia
Hong Kong, China
Hungary
Iceland
ireland
Italy
Jamaica
LatviaLebanon
LithuaniaMalaysia
MoldovaMorocco
New Zealand
Oman
Pakistan
Philippines
Portugal
Romania
Russian Federation
Singapore
Slovak Republic
Slovenia
Spain
Sri Lanka
Sweden
Switzerland
Tajikistan
ThailandTurkey
United Kingdom
Stylized Facts
ICT impact on entrepreneurship
Source: Author's calculation on World Development Indicators Online. 2008. World Bank
0
10
20
30
40
50
60
70
80
90
AlbaniaArmenia
AustriaAzerbaijan
Brazil
Bulgaria
Burkina Faso
Canada
Colombia
Croatia
Denmark
Georgia
Hong Kong, China
Hungary
Iceland
ireland
Italy
Jamaica
Latvia
LebanonLithuania
MalaysiaMoldova
MoroccoNew ZealandOman
PakistanPhilippines
Portugal
Romania
Russian Federation
Singapore
Slovak Republic
Slovenia
Spain
Sri Lanka
Sweden
Switzerland
Tajikistan
Thailand
Turkey
United Kingdom
UkraineUzbekistan
Yemen, Rep.Zambia
Personal computers (per 100 people) Radial Chart by country
Empirical Results
ICT impact on entrepreneurship
Source: Author's calculation on Millennium Development Goals Database. United Nations Statistics Division
Cell phones (per 100 people) Radial Chart by Country
Stylized Facts
ICT impact on entrepreneurship
0
20
40
60
80
100
120
140
AlbaniaArmeniaAustria
AzerbaijanBrazil
Bulgaria
Burkina Faso
Canada
Colombia
Croatia
Denmark
Georgia
Hong Kong, China
Hungary
Iceland
ireland
Italy
Jamaica
LatviaLebanon
LithuaniaMalaysiaMoldova
MoroccoNew ZealandOman
PakistanPhilippines
Portugal
Romania
Russian Federation
Singapore
Slovak Republic
Slovenia
Spain
Sri Lanka
Sweden
Switzerland
Tajikistan
Thailand
Turkey
United KingdomUkraine
UzbekistanYemen, Rep.Zambia
Source: Author's calculation on World Development Indicators Online. 2008. World Bank
ArmeniaAustria
Brazil
Buirkina Faso
Cánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
Italy
Latvia
LebanonLithuania
MalaysiaMoldova
Moroco
New Zeland
Oman
Portugal
Romania
RussiaSingapore
Slovenia
Spain
SwedenSwitzerland
ThaylandTurkey
United Kingdom
Uzbekistan
y = 0.0083ln(x) + 0.0368
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0 5 10 15 20 25
Bu
sin
ess
De
nsi
ty
Broadband subscribers (per 100 people)
Stylized Facts
Relations between Business density and broadband
ICT impact on entrepreneurship
Source: Author's calculation on World Development Indicators Online. 2008. World Bank, Global EntrepreneurshipMonitor (GEM and World Bank Group Entrepreneurship Survey 2008)
ArmeniaAustria
BrazilBulgaria
Cánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
Italy
Latvia
LebanonLithuania
MalaysiaMoroco
New Zeland
Portugal
Romania
Russia Singapore
Slovak RSlovenia
Spain
SwedenSwitzerland
Turkey
United Kingdom
y = 0.0173ln(x) - 0.0053
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0 10 20 30 40 50 60 70 80 90
Bu
sin
ess
De
nsi
ty
Personal computers (per 100 people)
Stylized Facts
Relations between Business Density and Personal Computer
ICT impact on entrepreneurship
Source: Author's calculation on World Development Indicators Online. 2008. World Bank, Global EntrepreneurshipMonitor (GEM and World Bank Group Entrepreneurship Survey 2008)
ArmeniaAustria
Brazil
Bulgaria
Burkina Faso
Cánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
ItalyJamaica
Latvia
LebanonLithuania
Malaysia
Moroco
New Zeland
Oman
Portugal
RomaniaRussia
Singapore
Slovak RSlovenia
Spain
Sri Lanka
SwedenSwitzerland
Thailand
Turkey
United Kingdom
UkraineUzbekistanZambia
y = 0.0235ln(x) - 0.0566
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0 20 40 60 80 100 120 140
Bu
sin
ess
De
nsi
ty
Cell phones (per 100 people) )
Stylized Facts
Relations between Business Density and Cell Phones
ICT impact on entrepreneurship
Source: Author's calculation on World Development Indicators Online. 2008. World Bank, Global EntrepreneurshipMonitor (GEM and World Bank Group Entrepreneurship Survey 2008)
ArmeniaAustria
Brazil
Buirkina Faso
Cánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
Italy
Latvia
LebanonLithuania
Malaysia
Moroco
New Zeland
Oman
Portugal
Romania
RussiaSingapore
Slovenia
Spain
SwedenSwitzerland
ThaylandTurkey
United Kingdom
y = 0.0573ln(x) + 0.2176
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%
Bu
sin
ess
De
nsi
ty
Investment in education as share of GDP
Stylized Facts
Relation between Business Density and Education
ICT impact on entrepreneurship
Source: Author's calculation on World Development Indicators Online. 2008. UNESCO
Austria
Brazil
BulgariaCánada
Denmark
Hong Kong
Iceland
Ireland
Italy
Latvia
Lithuania
MalaysiaMoldova
Moroco
New Zeland
Oman
Pakistan
Romania
RussiaSingaporeSpain
SwedenSwitzerland
United Kingdom
Uzbekistan
y = 0.0086e1.2369x
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
-2 -1 0 1 2 3
Bu
sin
ess
De
nsi
ty
Regulatory quality
Austria
Brazil
BulgariaCánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
Italy
Latvia
Malaysia
New Zeland
Oman
Pakistan
Romania
RussiaSingapore
Slovenia
Spain
SwedenSwitzerland
Thayland
United Kingdom
y = 0.0533ln(x) - 0.1751
0 20 40 60 80 100
Property Rights
Stylized Facts
Relations between Business Density and Regulatory quality (a) and property rigths (b)
ICT impact on entrepreneurship
Source: Author's calculation on The Worldwide Governance Indicators (WGI) Project. And Global EntrepreneurshipMonitor (GEM and World Bank Group Entrepreneurship Survey 2008)
Austria
Bulgaria
Buirkina Faso
Cánada
Croatia
Denmark
Hong Kong
Hungary
Iceland
Ireland
Italy
Latvia
Lebanon
New Zeland
Russia SingaporeSpain
Tajikistan
United Kingdom
y = 0.145ln(x) - 0.578
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0 20 40 60 80 100 120
Bu
sin
ess
De
nsi
ty
Ease of Doing Business
Armenia
Brazil
Bulgaria
Buirkina Faso
Cánada
Croatia
Denmark
Hong Kong
Iceland
Ireland
Italy
Latvia
LebanonLithuania
MalaysiaMoldova
Moroco
New Zeland
Oman
Pakistan
PortugalSpain
TajikistanThayland
United Kingdom
Yemen, Rep.
y = -0.024ln(x) - 0.0262
-5.000%
0.000%
5.000%
10.000%
15.000%
20.000%
25.000%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%
Unemployment Rate (%)
Stylized Facts
Relations between Business Density and (a) Ease of doing Business and (b) Unemployment Rate
ICT impact on entrepreneurship
Source: Author's calculation on Heritage Foundation. IMF : World economic Outlook. And Global EntrepreneurshipMonitor (GEM and World Bank Group Entrepreneurship Survey 2008)
Resultados modelo impacto de las TIC sobre el emprendimiento empresarial.
Business Density
VARIABLES
ICT Model
(1)
Model with Education
Control
(2)
Model with Macro and
institutional controls
(3)
Broadband 0.5925512**
(0.3271388)
0.5646527*
(0.3542261)
0.5877704*
(0.3303379)
Personal Computers 0.4273719***
(0.1607487)
0.4033949**
(0.2120301)
0.3925539***
(0.1592026)
Cell-Phones 0.1441682**
(0.0681971)
0.1535694**
(0.0721085)
0.1152283*
(0.0704763)
Education Investment - 1.134693
(7.430632)
-
Regulatory quality *doing
business
- - 0.0110152***
(0.0045987)
Property Rigths - - 0.1599177***
(0.0684771)
Unemployment - - -0.4866222*
(0.29132969
GDPP (PPP) - - 0.0001457
(0.0007039)
Constant 12.82066
(4.573563)***
10.09484
(27.49356)
4.598046
(7.576365)
Observations 185 152 177
Number of groups 42 38 42
R-Square: Withing
Between
Overall
0.3861
0.3337
0.3149
0.3485
0.2963
0.2673
0.4090
0.3850
0.3641
F
(Prob >F)
14.09
(0.000)
7.45
(0.000)
39.87
(0.000)
Robust Standard errors in parentheses ***p<0.01, **p<0.05, *p<0.1.
Model Results
ICT impact on entrepreneurship
Conclusions
• Results from the model to conclude that awareness of entrepreneurship to the impact of ICT indicators is a major way for access to broadband, then the number of personal computers and mobile phones per 100 inhabitants.
• On the other hand, the regulatory environment, the ease of doing business and establishing effective property rights positively impact the creation of new businesses.
• This would indicate that the density of new firms is significantly related to better governance. Regarding the level of unemployment, this is significant and reduces the density of business creation.